Grexit Returns to Haunt EU

Crisis-plagued Greece has come quite close to being kicked out of the eurozone several times, before last-minute deals averting such an outcome. But amid growing populism in Europe, it could be different this time round.

The same sequence of events keeps playing again and again in the years-long Greek economic saga: the grossly indebted southern European country runs out of money; it faces bankruptcy and the threat of being ejected from the monetary union. Greek government representatives and creditors implore, threaten and quarrel until the last minute—in the end, however, the creditors agree to offer assistance to Athens, DW reported.  

The last time this played out was in the summer of 2015 when Greece was sanctioned its third aid package worth €86 billion ($91.2 billion). The program will run until 2018, but the assistance is delivered in individual tranches, the payment of which hinges on Greece’s progress in slashing government spending and implementing structural reforms. But herein lies the hitch.

This summer, Greek debt repayments amounting to more than €6 billion will be due. Athens will be in a position to honor these commitments only if it receives the next tranche of aid from its creditors. But whether or not that happens is more unclear this time around.

 Important Elections

Two things are fundamentally different today. Unlike in the previous rounds, the International Monetary Fund is not party to Greece’s current bailout, and says it will not participate in it until there is a credible plan to cut the financially troubled nation’s large debt burden. “We do not believe that the debt burden for Greece is viable,” says Poul Thomsen, director of the IMF’s Europe Department. In other words, the IMF sets a precondition for its participation and that is it wants the creditor nations to grant some debt relief to Greece.

That would force other eurozone nations to take a hit by writing down their holdings of Greek debt. But there is a problem with that, and it is also the second aspect that’s different today than in the past: the political climate in Europe has changed dramatically.

Across the continent, right-wing parties campaigning against the EU and the euro are on the ascendant. In the coming months, national elections are set to take place in key EU nations, including France and Germany.

In France, the eurozone’s second-biggest economy, presidential candidate Marine Le Pen has expressed her desire to pull the country out of the euro should she win the presidency.

Markus Will, an economist from the University of St. Gallen in Switzerland, told DW that “it’s difficult to find a solution before the elections in France and Germany”.

Wolfgang Schauble, Germany’s finance minister, has appeared to take a tough line on Greece, demanding the country to steadfastly execute the reform and austerity measures agreed with its creditors. Otherwise, Athens could not remain in the monetary union, Schauble reckoned. 

There are also calls from some in the creditor countries for Greece’s exit from the monetary union, arguing that it would minimize the losses for the people in these nations.